Table of Contents

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP 2
The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases 2
SMEs buy insurance mainly through brokers and long-term relationships are the norm 2
Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market 2
The market share of the top 10 employers' liability insurers decreased marginally in 2006 3
The top 10 employers' liability insurers accounted for 61.6% of the market in 2006 3
Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007 3
Insurers gave a range of estimates for premium rate changes in 2009 and 2010 3
The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012 under neutral conditions 4
Table of Contents 5
Table of figures 6
Table of tables 7
Market Context 8
Introduction 8
The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP 8
The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases 8
The market recorded a dramatic loss in 2006 after costs rose significantly 10
Decreased NWP and increased outgoings both contributed to a plummeting underwriting result in 2006 10
Commissions and expenses rose to £585m in 2006 10
Change in provisions failed to secure an underwriting profit in 2006 10
The cost of employers' liability claims increased in 2006 as a result of the erratic nature of the employers' liability claims environment 12
The cost of employers' liability claims increased by 61.5% in 2006 12
The number of employers' liability claims fell to a five-year low in 2006/7 13
The British Coal scheme has cost £3.4 billion so far, although the majority of payments are for minor amounts 15
The British Coal scheme is expected to cost £7 billion when all claims have been settled 15
The majority of compensation offers to claimants for respiratory disease are below £5,000 16
Incidents of workplace accidents and work related ill-health were reduced in 2006/7 18
The total number of non-fatal workplace injuries fell in 2006/7 18
The number of workplace injuries, as reportable under RIDDOR, excluding acts of violence decreased by 4.6 % in 2006/7 19
Workplace fatalities increased in 2006/7 20
The total number of workplace injuries was estimated to be 313,685 in 2006/7 21
Total work-related ill-health decreased in 2006 22
NHS claw-back, changes to legislation on asbestos claims and indexation will increase future claims bills 24
The NHS claw-back scheme has only had a limited affect on the market so far 24
The House of Lords ruled against pleural plaques compensation in 2007 24
Changes in claims indexation for periodical payments are likely to have an impact on larger personal injury claims 24
Distribution Dynamics 26
Introduction 26
Brokers continued to dominate the distribution of commercial insurance 26
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 26
The direct channel increased its share of commercial insurance GWP by 1% in 2006 26
Affinity groups remain a small channel for the distribution of commercial insurance 27
Banks and building societies continue to play a small role in the distribution of commercial insurance 27
SMEs buy insurance mainly through brokers and long-term relationships are the norm 29
Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market 29
Brokers remain the top choice for SMEs to approach if they had to switch provider 30
Many SMEs are willing to consider alternative channels when prompted 32
Up to 44% of SMEs would consider using a bank as an insurance provider 32
Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings 32
National brokers represent the greatest threat to commercial brokers in the second half of 2007 33
Commercial liability products are the least at risk to the direct channel and likely to remain brokered 34
Over half of SMEs would buy their employers' liability insurance policies via the telephone or internet 35
Competitive Dynamics 37
Introduction 37
The number of new entrants was limited in 2007 with only a few new insurers entering the market 37
A new underwriting agency, Arista entered the employers' liability market in 2007 37
Howden expanded into the employers' liability market in 2007 37
QBE and Primary General launched products to target the SME market in 2007 37
The market share of the top 10 employers' liability insurers decreased marginally in 2006 38
The top 10 employers' liability insurers accounted for 61.6% of the market in 2006 38
Three of the top 10 players saw their market shares remain flat in 2006 39
Norwich Union, AXA, ACE and QBE increased their market share in 2006 39
Norwich Union saw its market share increase by two percentage points in 2006 39
QBE, AXA and ACE saw their market shares increase marginally in 2006 39
Zurich, Allianz and Aspen saw their market shares decrease in 2006 40
Zurich saw its market share decrease by two percentage points in 2006 40
Allianz and Aspen saw their market shares decrease marginally in 2006 40
The average gross claims ratio fell in 2006 after five of the top 10 employers' liability insurers saw their ratios improve 43
The average gross claims ratio for the top 10 fell to 72.7% in 2006 43
Five of the top 10 employers' liability insurers saw their ratios improve in 2006 43
Four of the top 10 employers' liability insurers saw their gross claims ratios deteriorate in 2006 43
Future Decoded 46
Introduction 46
Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007 46
Insurers gave a range of estimates for premium rate changes in 2009 and 2010 46
A number of factors will influence future GWP growth in the employers' liability market 46
Under the neutral scenario, employers' liability GWP is forecast to reach £2.3 billion by 2012 48
The competitive pricing continues to moderate future GWP growth in the neutral scenario 48
The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012 48
The employers' liability market is forecast to remain unprofitable between 2007 and 2012 50
Under more optimistic conditions, the employers' liability market is forecast to reach £2.7 billion 52
In the optimistic scenario, the market will harden in 2009 as competitive conditions relax 52
GWP is forecast to grow by 8.4 % on a compound average growth rate between 2007 and 2012 52
Profitability will improve in the market with combined ratios decreasing between 2009 and 2012 54
Appendix 57
Supplementary data 57
Performance ratios 60
Definitions 67
Premium income measures 67
Earned premiums 67
Gross premium 67
Net premium 67
Written premiums 67
Distribution 67
Direct 67
Other company agents 67
Utilities/retailers/affinity groups 67
Company staff 67
Banks/building societies 68
Definitions of general terms 68
Channel 68
Platform 68
Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages) 68
Pre-2005 definitions for lines of business 68
General liability 68
2005 FSA Return changes 69
Methodology 69
Market size methodology 69
Lloyd's players and underwriting result figures 69
Lloyd's market data 69
Employers' liability claims data 69
Ratio analysis methodology 70
Accuracy of figures 70
Datamonitor's Commercial Broker Survey 71
Datamonitor's SME Insurance Survey Q1 2007 71
Competitor data 72
GWP versus GEP reporting 73
Home-Foreign, overseas and facultative reinsurance business 73
Further reading 74
Ask the analyst 74
Datamonitor consulting 74
Disclaimer 74
List of Tables
Table 1: UK employers' liability insurance GWP, 2003-07e (£m) 9
Table 2: UK employers' liability detailed underwriting result, 2002-06 (£m) 12
Table 3: UK employers' liability gross claims incurred, 2002-06 (£m) 13
Table 4: Number of employers' liability personal injury claims split by accident and disease, 2002/3-2006/7 15
Table 5: Number of claims made to the DTI and total compensation paid for respiratory disease and vibration white finger under the British Coal scheme as of March 2, 2008 16
Table 6: Profile of offers made by BERR to claimants for respiratory disease under the British Coal Scheme, up to 31st December 2007 17
Table 7: Workplace injuries reportable under RIDDOR, 2002/3-2006/7p 18
Table 8: Workplace injuries reportable under RIDDOR, excluding acts of violence, 2002/3-2006/7p 19
Table 9: Workplace fatalities reported under RIDDOR, 2002/3-2006/7p 21
Table 9: Total estimated workplace injuries reportable to the HSE, 2002/3-2006/7p 21
Table 11: Number of cases of occupational disease and work related mental ill-health, 2002-06p 23
Table 11: ASHE 6115 and RPI inflation, 1998-2007 (%) 25
Table 12: Market share of distribution channels in the commercial general insurance market, 2003-06 29
Table 13: Q: "What level of threat do the following distribution channels pose to you?" 31
Table 14: Market share split by market leader, top 10 and rest of the market, 2005-6 39
Table 15: Employers' liability market share by competitor, 2002-06 (%) 41
Table 16: Employers' liability premium income by competitor, 2002-06 (£000s) 42
Table 17: Gross claims ratio of top 10 employers' liability insurers, 2002-06 45
Table 18: Key variables affecting employers' liability insurance GWP, 2007e-12f 47
Table 19: Employers' liability GWP forecast, neutral scenario , 2002-12f (£m) 50
Table 20: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, neutral scenario, 2002-12f (£m) 52
Table 21: Employers' liability GWP forecast, optimistic scenario, 2002-12f (£m) 54
Table 22: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, optimistic scenario, 2002-12f 56
Table 23: Employers' liability premium income by competitor, 2002-06 58
Table 24: Employers' liability market share by competitor, 2002-06 59
Table 25: Commercial liability competitors by loss ratio, 2002-06 60
Table 26: Commercial liability expense ratio by competitor, 2002-06 62
Table 27: Commercial liability combined ratio by competitor, 2002-06 63
Table 28: Commercial liability commission ratio by competitor, 2002-06 64
Table 29: Commercial liability management expense ratio by competitor, 2002-06 65
Table 30: Commercial liability net gross premium ratio by competitor, 2002-06 66
Table 31: Q: "What business sector are you involved in?" 71
Table 32: Q: "How large is your company in terms of number of employees?" 72
Table 33: Q: "How large is your company in terms of turnover?" 72
List of Figures
Figure 1: The market share of the market leader fell in 2006 3
Figure 2: Premium income is estimated to have fallen by an annual average of 5% between 2003 and 2007 9
Figure 3: The employers' liability market incurred a loss in 2006 11
Figure 4: Total gross claims soared to £2 billion in 2006 13
Figure 5: Disease claims in the employers' liability market have fallen dramatically since 2002/3 14
Figure 6: Claims above the value of £100,000 represented the smallest proportion of claims paid in 2007 17
Figure 7: The number of workplace fatalities increased in 2006/7 20
Figure 8: The number of work related illnesses decreased in 2006 23
Figure 9: Annual inflation using the ASHE6115 index is on average 2.6 percentage points higher than RPI 25
Figure 10: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP 28
Figure 11: The distribution of insurance to SMEs remained largely under the control of brokers in 2007 30
Figure 12: SMEs have become more likely to consider direct insurers if they were to change provider 31
Figure 13: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider 32
Figure 14: Price is the top reason given by SMEs that would consider switching to a direct insurer 33
Figure 15: National brokers remain the largest threat to the majority of survey respondents 34
Figure 16: Commercial motor is the line of business most at risk to the direct channel 35
Figure 17: Over half of SMEs would consider buying commercial motor, property and employers' liability online or via the telephone 36
Figure 18: The market share of the market leader fell in 2006 38
Figure 19: Zurich remained the market leader in 2006 despite a decrease in its market share 40
Figure 20: Three insurers achieved gross claims ratios below 60% in 2006 44
Figure 21: The market is forecast to grow at a CAGR of 3.9% between 2002 and 2012 49
Figure 22: Under the neutral scenario the gross claims ratio in the employers liability market is expected to reach 135.8% by 2012 51
Figure 23: The UK employers' liability is forecast to reach £2.7 billion in 2012 under less competitive conditions 53
Figure 24: The combined ratio is expected to decrease to 121.4% by 2012 under the optimistic scenario 55